Worrying Figures In the UK Finance Annual Fraud Report Show Investment Fraud Is On The Rise

The latest Annual Fraud Report produced by UK Finance makes grim reading for everyone except the scammers. Between 2020 and 2021, the total amount of reported investment fraud was up by more than 57%, with £171m lost. The data only scratches the surface because not all fraud is reported. An equally worrying trend is that more people are getting caught out by scams. The 12,074 cases reported in 2021 was a 48% increase on the number for 2020.

Criminals are making ground in terms of being able to convince victims to move their money to a fictitious fund or to pay for a fake investment. The sectors that they target are many and varied but include high volatile instruments such as cryptocurrencies and carbon-based investments, where their promises of high returns appear plausible.

More bad news is that investment fraud is increasingly the go-to-market for scammers. The UK Finance report breaks scams into eight categories. In 2021, investment fraud accounted for the largest proportion of losses. The £171m loss trounces the totals reported by malicious payee scams, purchase scams, romance scams, advance-fee scams and malicious redirection scams.

How The Scams Work

Criminal gangs are well-organised, ruthless and tech-savvy. They’re also hard to discourage easily due to the average payout on an investment scam being more than £14,000. They are systemically bypassing banks security measures by directing their efforts at the customer outside the payments journey.

Social engineering tactics involving deception and impersonation are a key driver and notably increased during the COVID pandemic and lockdown. Criminals use social media channels such as Instagram and Facebook to lure in their victims. One often-used approach is to use adverts relating to investments that never materialise once the victim’s payment has been made. Other scams involve the use of the telephone, email and text messages and scammers posing as a genuine individuals or organisations.

What’s being done to stop scams

The banking and finance industry continues to invest billions in tackling fraud. But the producers of the report themselves acknowledge that it is only through improving the levels of coordination and collaboration that they’ll be able to ‘shift the dial’. This task is made harder by the fact that criminals are notoriously able to stay one step ahead of the authorities.

Investor education is another option – individuals have to be responsible. Brushing up on these guidelines on how to protect yourself from an investment scam are a good place to start, and the list of scam brokers to avoid includes the names of firms on the ForexFraud blacklist.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers and you can share your experiences here. If you would like to know more about this particular topic or have been scammed by a fraudulent broker, you can also contact us at [email protected]

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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